Farm Bureau: Too many farms lost to estate taxes

Published: February 15, 2011 4:00AM

By AMANDA ROLIK

Staff Writer

WOOSTER -- State legislation regarding estate tax is an unfortunate factor that plays a part in the loss of some family farms.

A recent press release from the Ohio Farm Bureau Federation stated that on average, 84 percent of farm assets are real-estate based, and the Ohio Farm Bureau supports efforts by the Ohio General Assembly to eliminate the Ohio estate tax.

"Burdensome estate taxes can cause the loss or breakup of family farms when heirs are forced to sell assets to pay the tax and/or administrative costs," the release said.

According to John Fitzpatrick, director of the Wayne County Farm Bureau, every farm in Wayne County is a family owned farm, and many find themselves looking at ways to be able to pass their farms down to the next generation while having an estate tax to pay.

Under current Ohio law, the estates of residents with a net taxable value of $338,333 have a 6 percent tax rate. This applies to any net taxable value above that amount, up to $500,000. A 7 percent rate applies to any value over $500,000.

"The general problem is that most farmers are land rich and cash poor," Fitzpatrick said.

Farm owners face the problem of having valuable land, but a net profit that is not that large. They are left with the choice of selling their land or mortgaging it.

If they sell, then they no longer have land on which to grow crops, but if they mortgage then the crops will not generate enough cash flow to afford the land, said Fitzpatrick.

According to Chris Finney, associate attorney at Logee, Hostetler, Stutzman and Lehman in Wooster, whether the issue impacts farmers depends on where the exemption level is. The federal estate tax is applied to residents with a $5 million net taxable value, which "takes farms out of the concern." It is the state tax that currently causes an issue for many farmers.

However, according to Finney, there are things that can be done in terms of estate planning to avoid having to sell farmland. One option is to divide assets into a trust fund.

Also, there are provisions to reduce the value of a farm, but not all farmers can meet the requirements to do so.

Taking measures to reduce the value of one's farm is something that needs to be done only in a "worst case scenario," Finney said, such as the federal estate tax exemption level going down to $1 million in 2013.

"That could break up a lot of farms," Finney said.

Finney doesn't think it will come to that, but "it's definitely a possibility."

Reporter Amanda Rolik can be reached at 330-287-1635 or e-mail arolik@the-daily-record.com.